Business Law and Regulation

Business Organization
BASIC TYPES OF BUSINESS ORGANIZATIONS
Persons who are engaged in business use different business organizations and business
arrangements as vehicles therefor. Among others, these include: 1) Sole
Proprietorship, 2) Partnership, 3) Joint Account, 4) Business Trust, 5) Joint Venture,
6) Cooperative, and 7) Corporation.1 J. Sundiang Sr. & T. Aquino (2013); Reviewer on
Commercial Law

1. INDIVIDUALS AND SOLE PROPRIETORSHIP

A. Who are Individuals and Sole Proprietors?
A person personally conducts business under his name or a business name. The
business is an organization composed of the proprietor himself and his employees but
it has no personality separate and distinct from the proprietor.2 P.164, Ibid.
These are the businesses we usually see in our localities such as retail stores,
eateries, canteens, minimart, small resorts, apartments and etc. that are owned and
managed by individuals and or sole proprietors by themselves. Even if the business has
its own business name, it does not possess a separate personality of its own unlike
partnerships and corporations.

B. What is Business Name?

Business name refers to any name that is different from the true name of an
individual which is used or signed in connection with her/his business on any written
or printed receipts including receipts for business taxes duties and fees and
withdrawal or delivery receipts; any written or printed evidence of any agreement or
business transaction; and any billboard conspicuously exhibited in plain view in or at
the place of her/his business or elsewhere announcing her/his business. 3 P. 164-165, Ibid
Take note that it shall be unlawful for any person to use or sign, on any written or
printed receipt, including receipt for tax on business, or on any written or printed
contract not verified by a Notary Public, or on any written or printed evidence of any
agreement or business transactions, any name used in connection with his business
other than his true name, or keep conspicuously exhibited in plain view in or at the
place where his business is concluded, if he is engaged in a business, any sign
announcing a firm name or business name or style, without first registering such
other name, or such firm name, or business name, or style, in the Bureau of
Commerce (now Department of Trade and Industry) together with his true name and
that of any other person having a joint or common interest with him in such contract,
agreement, business transaction, or business. (Emphasis ours)4 Sec. 1, Act No. 3883 as
amended

This means that an individual or a sole proprietor whose business name is not
registered cannot use or sign the business name in connection with his/her business
on any written or printed receipts or any evidence of agreement or other documents.
Likewise, he/she cannot exhibit or display the business name or sign thereof in plain
view.

C. What are the sanctions of using unregistered Business Name?

Any person violating said prohibition shall be deemed guilty of a misdemeanor, and
upon conviction thereof shall either be fined or imprisoned or both, in the discretion
of the court.5 Sec. 4, Ibid.
On the other hand, an individual or a sole proprietor who wish to use and register a
business name is not free to choose any name he/she desires. As provided in DTI
Department Administrative Order No. 18-07 series of 2018, the following are non-
registrable business names:
1. Those that connote activities or norms that are unlawful, immoral, scandalous
or contrary to propriety;
2. Those names, words, terms or expressions used to designate or distinguish, or
suggestive of quality, of any class of goods, articles, merchandise, products or
services;
3. Those that are registered as trade names, trademarks, or business names by
any government agency authorized to register names or trademarks;
4. Those that are inimical to the security of the State;
5. Those that are composed purely of generic word or words;
6. Those that by law or regulation are restricted or cannot be appropriated;
7. Those that are officially used by the government in its non-proprietary
functions;
8. Those names or abbreviations of any nation, intergovernmental or international
organization unless authorized by competent authority of that nation, inter-
government or international organization;
9. Those ordered or declared by administrative agencies/bodies or regular court
not to be registered;
10. Those names of other persons;
11. Those names which are deceptive, misleading or which misrepresent the nature
of business.
Unlawful means anything that is contrary to law or to the lawful orders of the state.
Hence, you cannot use the following as your business name: John’s Marijuan Store;
Stolen Items Minimart, etc.
Likewise, words that indicates immorality, scandalous or contrary to propriety are
also non-registrable. That’s the reason why entertainment bars, clubs and beer houses
used “Blue Pegasus”, “Air Force One”, “Infinity Club” and the likes as their registered
business name.
Names or words that are already registered with the appropriate government agency
are no longer registrable. Same with names or abbreviations of any nation,
intergovernmental or international organization unless authorized by competent
authority of that nation, inter-government or international organization.
Of course, you cannot use as your business name the name of some other person
totally foreign from your business. Much more with deceptive, misleading or which
misrepresent the nature of business.

2. PARTNERSHIP
A. What is Partnership?
It is a contract whereby two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits
among themselves, or in order to exercise a profession. 6 Art. 1767, RA No. 386 Civil Code of
the Philippines

It must be noted that in partnership, a separate personality exists separate and

distinct from that of the partners or the person forming the partnership. The most
common partnership we had are business partnerships. They are created or formed
through a written agreement by two or more individual or companies for a certain
objective. However, there are also partnerships created for the exercise of profession
such as Accounting Firms and Law Firms.
Partnership is usually registered with the Securities and Exchange Commission (SEC).
However, in some instance, registration with the SEC in not necessary for a
partnership to acquire juridical personality. Even an unregistered partnership has a
personality separate and distinct from its partners.

3. JOINT ACCOUNTS
A. What is Joint Account?
An arrangement whereby merchants may interest themselves in the transaction of
other merchants, contributing thereto the amount of capital they may agree upon,
and participating in the favorable and unfavorable results thereof in the proportion
they may determine.7 Art. 239, Code of Commerce
This is commonly called an accidental partnership; and there is no indication to the
public that there is an existing arrangement because only the ostensible partner is
conducting the business.8 P. 170-171, Supra

B. What are the Basic Features of Joint Accounts?

• Joint accounts have no juridical personality.
• No commercial name common to all participants can be adopted in joint
accounts.
• Only the ostensible partner - the person carrying on the joint business - can be
sued by and is liable to persons transacting with the former.

4. BUSINESS TRUST
A. What is Business Trust?
It is a legal relation whereby one person, called the trustor, conveys a property to
another for the benefit of a person called the beneficiary. The person in whom
confidence is reposed as regards the property is called the trustee. 9 Art. 1440, RA No. 386
CCP

It is a concept where certain business, transaction or property are entrusted to a

certain individual or a corporation for the benefit of a third person or the beneficiary.
Business Trusts usually involves three parties, the trustor, trustee and the beneficiary.
The trustee is the person or corporation (in case of a corporation) designated with the
responsibility and the authority to carry out the terms, conditions and or instructions
of the trust and to make decisions when decisions need to be made. Trustees, like the
officers of a corporation, are the ones who have the authority to bind the trust to
contracts, deeds, loan documents, etc. The trustees are accountable to the
beneficiaries to handle the trust for the benefit of the beneficiaries.

B. Kinds of Trusts
Trusts are either express or implied. Express trusts are created by the intention of the
trustor or of the parties. Implied trusts come into being by operation of law. 10 Art. 1441
of RA No. 386

5. JOINT VENTURE
A. What is Joint Venture?
An association of persons or companies jointly undertaking some commercial
enterprise; generally, all contribute assets and share risks. It requires a community
interest in the performance of the subject, a right to direct and govern the policy
connected therewith, and duty, which may be altered by agreement to share both in
profit and losses (Kilosbayan v. Guingona 232 SCRA 110 [1994]).
A joint venture is actually a form of partnership and should thus be governed by the
laws of partnership. Corporations can enter into joint venture agreements. 11 P. 172,
Supra

12. Philippine Corporate Law - C. Villanueva (1998)

Considering that a joint venture is a particular partnership, it would have the

following characteristics:
1. It would have a juridical personality separate and distinct from that of each of
the joint venturers.
2. Each of the co-venturers would be liable with their private property to the
creditors of the joint venture beyond their contributions to the joint venture.
3. Even if a co-venturer transfers his interest to another, the transferee does not
become a co-venturer together with the others in the joint venture unless all
the other co-venturers consent. This is in consonance with the principle of
delectus personarum.
4. Generally, the co-venturers acting on behalf of the joint venturers are agents
thereof with capacity to bind the joint venture.
5. Death, retirement, insolvency, civil interdiction or dissolution of any co-
venturer dissolves the joint venture.

6. COOPERATIVES
A. What is Cooperative?
A cooperative is an autonomous and duly registered association of persons with a
common bond of interest, who have voluntarily joined together to achieve their
social, economic, and cultural needs and aspirations by making equitable
contributions to the capital required, patronizing their products and services and
accepting a fair share of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles.13 Art. 3, RA No. 9520
Cooperatives may fall under any of the following types:14 Ibid, Art. 23
A. Credit Cooperative is one that promotes and undertakes savings and lending
services among its members. It generates a common pool of funds in order to
 provide financial assistance to its members for productive and provident
purposes;
B. Consumers Cooperative is one of the primary purposes of which is to procure
and distribute commodities to members and non-members;
C. Producers Cooperative is one that undertakes joint production whether
agricultural or industrial. It is formed and operated by its members to
undertake the production and processing of raw materials or goods produced by
its members into finished or processed products for sale by the cooperative to
its members and non-members. Any end product or its derivative arising from
the raw materials produced by its members, sold in the name and for the
account of the cooperative, shall be deemed a product of the cooperative and
its members;
D. Marketing Cooperative is one which engages in the supply of production
inputs to members and markets their products;
E. Service Cooperative is one which engages in medical and dental care,
hospitalization, transportation, insurance, housing, labor, electric light and
power, communication, professional and other services;
F. Multipurpose Cooperative is one which combines two (2) or more of the
business activities of these different types of cooperatives;
G. Advocacy Cooperative is a primary cooperative which promotes and advocates
corporativism among its members and the public through socially-oriented
projects, education and training, research and communication, and other
similar activities to reach out to its intended beneficiaries;
H. Agrarian Reform Cooperative is one organized by marginal farmers majority
of which are agrarian reform beneficiaries for the purpose of developing an
appropriate system of land tenure, land development, land consolidation or
land management in areas covered by agrarian reform;
I. Cooperative Bank is one organized for the primary purpose of providing a wide
range of financial services to cooperatives and their members;
J. Dairy Cooperative is one whose members are engaged in the production of
fresh milk which may be processed and/or marketed as dairy products;
K. Education Cooperative is one organized for the primary purpose of owning
and operating licensed educational institutions notwithstanding the provisions
of Republic Act No. 9155, otherwise known as the Governance of Basic
Education Act of 2001;
L. Electric Cooperative is one organized for the primary purposed of undertaking
power generations, utilizing renewable energy sources, including hybrid
systems, acquisition and operation of sub-transmission or distribution to its
household members;
M. Financial Service Cooperative is one organized for the primary purpose of
engaging in savings and credit services and other financial services;
N. Fishermen Cooperative is one organized by marginalized fishermen in
localities whose products are marketed either as fresh or processed products;
 O. Health Services Cooperative is one organized for the primary purpose of
providing medical, dental and other health services;
P. Housing Cooperative is one organized to assist or provide access to housing for
the benefit of its regular members who actively participate in the savings
program for housing. It is co-owned and controlled by its members;
Q. Insurance Cooperative is one engaged in the business of insuring life and
poverty of cooperatives and their members;
R. Transport Cooperative is one which includes land and sea transportation,
limited to small vessels, as defined or classified under the Philippine maritime
laws, organized under the provisions of this Code;
S. Water Service Cooperative is one organized to own, operate and manage
waters systems for the provision and distribution of potable water for its
members and their households;
T. Workers Cooperative is one organized by workers, including the self-
employed, who are at same time the members and owners of the enterprise.
Its principal purpose is to provide employment and business opportunities to its
members and manage it in accordance with cooperative principles; and
U. Other types of cooperatives as may be determined by the Authority.

7. CORPORATION
A. What is Corporation?
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.15 Sec. 2, RA No. 11232 Revised Corp. Code of the Philippines

BARANGAY MICRO BUSINESS ENTERPRISE (BMBE)1 RA 9178

A. What is Barangay Micro Business Enterprise (BMBE)?
It refers to any business entity or enterprise engaged in the production, processing or
manufacturing of products or commodities, including agro-processing, trading and
services, whose total assets including those arising from loans but exclusive of the
land on which the particular business entity’s office, plant and equipment are
situated, shall not be more than Three Million Pesos (P3,000,000). 2 Sec. 3, Ibid.

B. What is Certificate of Authority?

Certificate of Authority is the certificate issued granting the authority to the
registered BMBE to operate and be entitled to the benefits and privileges accorded
thereto.
C. What do you mean by registration?
Registration refers to the inclusion of BMBE in the BMBE Registry of a city or
municipality.

D. Where to register?
The Office of the Treasurer of each city or municipality shall register the BMBEs and
issue a Certificate of Authority to enable the BMBE to avail of the benefits under this
Act. Any such application shall be processed within fifteen (15) working days upon
submission of complete documents. Otherwise, the BMBEs shall be deemed registered.
The Municipal or City Mayor may appoint a BMBE Registration Officer who shall be
under the Office of the Treasurer. Local government units (LGUs) are encouraged to
establish a One-Stop-Business Registration Center to handle the efficient registration
and processing of permits/licenses of BMBEs. Likewise, LGUs shall make a periodic
evaluation of the BMBEs' financial status for monitoring and reporting purposes.
The LGUs shall issue the Certificate of Authority promptly and free of charge.
However, to defray the administrative costs of registering and monitoring the BMBEs,
the LGUs may charge a fee not exceeding One Thousand Pesos (P1,000.00).
The Certificate of Authority shall be effective for a period of two (2) years, renewable
for a period of two (2) years for every renewal.3 Sec. 4, Ibid.

E. Who are Eligible to Register?

Any person, natural or juridical, or cooperative, or association, having the
qualifications as defined in Sec. 3(a) hereof may apply for registration as BMBE.4 Sec.
5, Ibid

F. What are the benefits and incentives of a registered BMBEs?

1. All BMBEs shall be exempt from income tax for income arising from the
operations of the enterprise. The LGUs are encouraged either to reduce the
amount of local taxes, fees and charges imposed or to exempt the BMBEs from
local taxes, fees and charges.5 Sec. 7, Ibid.
2. The BMBEs shall be exempt from the coverage of the Minimum Wage Law.
Provided, that all employees covered under this Act shall be entitled to the
same benefits given to any regular employee such as social security and
healthcare benefits.6 Sec. 8, Ibid.
 3. Priority to a special credit window set up specifically for financing
requirements of BMBEs.7 Sec. 9, Ibid.
4. Technological transfer, production and management training, and marketing
assistance programs for BMBEs beneficiaries.8 Sec. 10, Ibid.

MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)1 RA No. 6977 as amended by RA No. 9501
Micro, Small and Medium Enterprises - any business activity or enterprise engaged in
industry, agribusiness and or services, whether single proprietorship, cooperative,
partnership or corporation whose total assets, inclusive of those arising from loans but
exclusive of the land on which the particular business entity’s office, plant and
equipment are situated, must have value falling under the following categories:
Micro - not more than P3,000,000
Small - P3,000,001 - P15,000,000
Medium - P15,000,001 - P100,000,000

Industry shall refer to set of all production units engaged primarily in the same or
similar kinds of productive activities. The following are the major industry divisions:
agriculture; hunting and forestry; fishing; mining and quarrying; manufacturing;
electricity, gas and water supply; construction; wholesale and retail trade, repair of
motor vehicles, motorcycles and personal and household goods; hotels and
restaurants; transport, storage and communication; financial intermediation; real
estate, renting and business activities; public administration and defense; compulsory
social security; education; health and social work; other community, social and
personal service activities; private household with employed persons; extra-territorial
organizations and bodies. This term is used for disaggregating other labor and
employment measures, e.g., total number of employed persons by major industry
divisions.

Agri-business shall refer to the production and processing of agricultural and fishery
products (including their by-products and wastes), biofuels, feeds and organic
fertilizers. The processing of agricultural products by the entity must be integrated
with its own production/plantation or with contract growing arrangement.

Trade shall refer to the business of buying and selling commodities. The concept of
“trade” is centered on the simple activity of the exchange of goods and or services.
Services shall refer to entities that are principally engage in the sale of service to
individuals for their own or household use and is generally recognized as such. It shall
include the practice of one’s profession (i.e., profession for which PRC license is
issued), and the operation of tourism related establishment.

A. What is a Micro Business?

A micro business or enterprise is any business activity or enterprise engaged in
industry, agribusiness and or services, whether single proprietorship, cooperative,
partnership or corporation whose total assets, inclusive of those arising from loans but
exclusive of land on which the particular business entity’s office, plant and
equipment are situated, must have value not more than three million pesos. 2 Sec. 3,
Ibid.

Example:

Total Asset (exclusive of land) = 2.8 M

Land (office, plant & equipment are situated) = 5M
_______________________________
MICRO BUSINESS OR ENTERPRISE

Total Asset (exclusive of land) = 4M

Land (office, plant & equipment are situated) = 1.5M
_______________________________
NO LONGER A MICRO BUSINESS OR ENTERPRISE

Thus, if you qualify under micro business category, you may be eligible to be
registered as a Barangay Micro Business Enterprise (BMBE) and enjoy the benefit and
incentives afforded to Barangay Micro Business Enterprise mentioned above.